Intro to Leveraged Yield Farming - Long Strategy
Last updated
Last updated
A long strategy involves buying an asset with the expectation that its value will increase over time. It can be combined with LYF, offering a potential solution to the long-standing problem of Impermanent Loss (IL).
In traditional AMM, liquidity providers are exposed to IL when the price ratio of tokens in the selected trading pair fluctuates. The loss is amplified when prices drop and earning is reduced when prices rise.
However, in LYF, an initial long exposure can be established by borrowing specific assets. For instance, let's take the case of Luca, who initially holds $1000 USDC and has a bullish outlook on $OP. Luca can create a 3x long LYF position on the OP/USDC trading pair.
As a result, $2000 USDC will be borrowed from the lending pool and $1500 of which will be automatically converted into OP. Subsequently, these $1500 OP and $500 USDC will be paired with Luca's initial $1000 USDC, forming the LP token.
Luca will receive two parts of the profits:
the 3x amplified APR (the actual APY will be higher than 3x)
if the price of OP rises, Luca will earn the excess amount to the value he borrowed. When OP price rises 50%, Luca will earn $674 USDC + the APY in total.
In short, to maximize earnings in a bullish market, long LYF should be your 1st option. However, just like any other long strategy, it carries a higher risk when the price drops. Do your own research and invest wisely.
Related post: https://twitter.com/ExtraFi_io/status/1679082817035341826
